Rick Perry: Middle Income Americans Don't Pay Enough Income Taxes

Len Burman
, We cover the intersection of money and politics.Opinions expressed by Forbes Contributors are their own.

I’ve been blissfully off the grid for the past few days, cycling in Western New York. (Allegany State Park is absolutely gorgeous. Made me be glad to be paying taxes in New York State.) I could forget about the debt ceiling fiasco, 9 percent unemployment, the tea party, runaway health spending, global warming, the NBA lockout…

We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax. (Quoted in this terrific Ruth Marcus column.)

We’re apparently not dismayed that more than half of all Americans have been in a 30-year recession with little or no income growth. We’re apparently willing to write off Social Security and Medicare payroll taxes, which are the big federal taxes for low- and middle-income Americans. A family of four earning $30,000 may pay no federal income tax, but it pays $4,590 in payroll taxes (including the employer’s share, which economists believe is ultimately paid by the employee in the form of lower wages). Payroll taxes are much bigger than income taxes for most families.

Among working households, 82 percent pay more payroll tax than income tax. They also pay federal excise taxes on gasoline, beer, wine, liquor, tires, and cigarettes. And state and local taxes are notoriously regressive. Feel better, governor?

It’s true that middle income people don’t pay the estate tax. Nor do most rich people. Are we dismayed about that?

Here’s another shocker for the governor: the recession surely caused many households to join the ranks of “lucky duckies.” (This is the Wall Street Journal’s term for people so poor that they don’t owe income taxes. My reaction is here.) Are we dismayed that after dad lost his job due to the recession, the family can still claim the child tax credit so long as mom keeps working?

Okay, here are some facts, courtesy of the Tax Policy Center. They may not allay Mr. Perry’s dismay, but they should assuage the concerns of anyone with a soul.

Of the 46% of households who don’t pay income tax, nearly 2/3 pay payroll taxes.

Of the 18% who pay neither income nor payroll taxes, more than half are elderly.

More than 1/3 have incomes below $20,000. (Note: Ronald Reagan made the decision in 1986 to exempt people with incomes below the poverty line from federal income tax. Twenty-five years later, that still seems like a good call.)

Only 1% of nontaxpaying households are nonelderly with incomes over $20,000. I’m dismayed about them too governor. Maybe we should close some of the loopholes that allowed almost 1,500 millionaires to escape income tax in 2009.

Governor Perry’s dismay raises some questions about the potential tax policy implications. Does he want to raise taxes on lower-income elderly people—by far the largest category of lucky duckies? Does he want to raise income taxes on the bottom 50% of taxpayers? If so, wouldn’t that trickle up to raises taxes on most if not all of the middle class? How does that square with his pledge to never ever raise taxes? To keep his “tax reform” from being a net tax increase, he’d have to give tax cuts to high income folks.

Oh, right, we have to raise taxes on the working poor and the middle class to finance even more tax breaks for millionaires.